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IN THE PHILIPPINE
Arse_io
M. Ballsacan
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ECONOMIC INCENTIVES AND COMPAP_ATIVE ADVANTAGE IN' _HE PHILIPPINE COTTON INDUSTRY
Arsenio
M. Balimacan
INTRODUCTION
In support to develop
agricultural
development
objective progof
import
the national
cotton
development reintroduction
in Philippine Rationale
launched
(1966-75),
annual
outflow
have
that cotton
can be grown
of the country
with
a profitable have
rate of return. as potential and about systems. 150,000 The latter for As
than 530,000
hectares
suitable
for cotton
hectarage
of i15,000
in order
to be self-sufficient
bonsumpEion.
IResearch intern, Resource Systems Institute, East-West Center, Honolulu, Hawaii, and Science Research Specialist (on leave), Cotton Research and Development institute, Philippines. This paper is based on the author's MS Thesis (Balisacan, 1982) and is part of the project entitled "The Impact of Economic Policies on Philippine Agricultural Development" funded by the Philippine Institute and Development Studies and Philippine Council for Agricultural and Resources Research and Development". 2pioneering attempts to co_=_ercialize cotton cultivation in the country were made as early as pro-Second World War. However, inadequate technical know-how, coupled with managerial and acute financial problems led to the abandonment of operations.
1950~g_
,
about
17,000 hectares
to cotton
a qumttum
beginning
in crop year
the p_omot_u
competitive to imported
produced
the c,_.'omy
have a ompaxative
advantage
in domestic
pr_oduction? encouraged.,
of _overnmant
policies
_o
questions. trends
The firs_
de_e!oDment_
in production In the
industry.
policies
on the structure
inceu_ive$
in the cotton
cotton production
is. co.%apreherusivelyexplored.
I.
I_mUSTR
BAC_"ROL_D
Historical
Profile
cotton
industry
as the preflourished,
Throu_=hout the lan_, hOl_Sehold weaviu_ a native fabric mad_ ancestors extracted
and '"lompotes;_
...., ,.
export
product _ne
from perennial_ty_e
COttOn
,
p!181_tS.
3 _._iththe transfer during The the Span&sh of the center the local of trade industry from Cebu to Manila began to crumble. by
regime,
cheaper
imported
faSrics
manufacture This
English proved
mills
fabrics. industry.
In a for
ceased
batter became
commodity
goods,
the locally
grown
mere backyard
industry
of the National
of cotton
to attempt
to grow cotton
on a commerin
100-hectare however,
cotton cul_iva_ion
industry Company
Development Corporation
in 1953 and
in 1955, the latter in 1956. of co_ton mechanized &_ annual Concencultivation all-cotton average of
in Mindanao
established
of laborer8
and planting
nearly
1,000 hectares. of _he undertaking, Overall average unfortunately, were rather after e_g_ dis= cropping
Results couraging.
seeucotton3yi_d_
consisting
of fibers
and seeds,
picked
from cotton
4 years, was o_.iy 326kg/ha, Teclmical inadequately, with the lowest registered at 85kg/ha. difficulty
complicated
by acute conflict_
financial within
and organization_l
and operational
the company
At this time,
to the early
millers
imports
agitetated
industry.
of Republic
the Philippine
Textile
Institute
PTRI,
to promote
of the country's
textile
of Plant
Industry,
in_erest
in the launching
gave special
attention
of the country.
Deltapinee in
to be the best
Luzon
State
University,
through
assumed
the important
research
program
om cotton cultivation.
5 research results efforts turned out to be successful of a pioneering program and the encouraging project with called "Operaconcento
production
operations sought
in Central cotton
Pangasiann, growing
in 1972.
This
project
reintroduce
into farmers'
cropping
systems,
performance Thus,
of "Operation
attention.
the signing
amended
implement,
production attached
in the country.
to the Ministry
of Agriculture,
PCC is a joint
between
TO support launched
cotton after
of pilot
by virtue Institute
and Development
in June
and development
the national
of attaining
self-sufficiency
time possible. Scenario are over 20 cotton Over textile millers presently of their
in the country.
the magnitude
demand
is reflected
in the country's
lint the
(equivalently
referred
total supply before'f975. Raw cotton by inter-year (Figure l). imports over the last two decades, generally showed though marked trend by
a declining
average
quantity despite
of imports
dropped
i5 percent increase
in per capital
and population.
menon was due to the intense cotton and man-made however, reaching a more raw cotton $47 million twofold
competition fibers,
of _mport value
largely
than
im world
prices
between
decades. The observed cotton related period_ inter-year fluctuations in the volume of raw can be during this
firms were
(60 percent)
primarily
Presumably, of
Policy
Committee
of the Board
placed
of over-
industries
in _mportation from
could be a_tributed
to the deletion
of the industry
industries
This end
on expansion of machineries
of facilities
and equipments)
For the past decades, from the United the 1971-75 vided States
imports
originated
(Table
period
to the Philippine
industry
its Public
production.
cotton early
in the fifties
the nationfrom
this latter
cant fraction
of the domestic
to supply in 1975,
of the eighties
(Table 2).
With
remaining
at the same
level during
this increase
in proportion
4The iaw's primary purpose was to support American agriculture_ while at the same time assisting the economic development of friendly nations through the utilization of America_s surplus of agricultural commodities via provision of long-term credit for the purchase of such surplus crops. USDA's Counnodity Credit Corporation financed the sale and exportation of these commodities.
8 almost period, entirely to domestic an annual production growth which_ during the same
registered
rate of about
i00 percent. of
Interfiber man-made
or synthetic
industry.
for man-made
concentrated developed
in apparel between
and elastomer
industries,
competition
natural
and local
fiber
in Figure
index
represented
_, US polyester
decreaead
the fifties
seventies.
Cotton
prices,
howevers
the polyestercompared
ratio
75 percent,
to 1960-65. consumptionp
This may be part of as reflected in the increase the relaabsorbed fibers was conproin a
the reason
level of .imports shown earlier, during tively greater durin8 siste_t d_ced 1972 the same period. cheaper man-made Local fibers
correspondingly imports
of textile
Also, cotton
on locally
percent
in 1963 to 27 percent
(Table 3).
9 The trend in relative however, increase changed after world prices of competing fi%ers, to
1973.
Prices
of man-made
synthetics
for their raw materials though cotton cotton between content prices
during
about
of locally
fabrics
increased
especially
Policies, Affecting
sector. created
As mentioned
earlier,
the Philippine
of PD 350, later
to undertake, cultivation in
commercial=scale
cotton
a broad
of activities,
critical growing
extension
storing,
baling,
and marketing
under
its program. price is set By PCC at the beginning are assured of the market of the croD-
and farmers
and processor
participating
commercial
banks,
gents production
credit
to farmers.
Like
plus
2 percent
service
charge
season,
perhectare
Translated
into
(lint) production,
the average
loan ranged
by farmers
This practice
enables
production
During which
averaged
85 percent, loans
production
of a similar
The textile
sector. mainly
domestic
cotton
suplly, of
from imports,
the bulk
United
States
through Public
the provision
of the agree-
the US
Law 480) and the Philipits effect in 1975, the fraction through
government. domestic
ceased
same year
started
to supply a _odest
Quantitative however,
regulation
by the government
system,
was in effect - and is still presently Under the system, the Development mills only
- on imported
imports
of cotton by textile
ii cntton mills' has been request allocated to import among these= mills If the textile their request
is granted,
DBP enters
and endorses
the application
of qualified
importers
to Central
Bank, which are then authorized In addition are subjected 10 percent represent cotton. produced 'a measure to quantitative duties
to open a letter of credit regulations, - I0 percent mark-up. tariff cotton imports and a
to customs
ad valorem
implicit
taxes imposed
this rate
can be also
protection
on cotton
section_
however, cotton
to domestic
Recently, dustry
the expansion
in-
was given
a considerable
The government,
in pus h-
ing its export-orientation exchange equipment the mbdern , is encouraging in response finishes
program
of foreizn
the country's
to tachnology
development
desired
for exports.
this program,
through
equipment
and machinery
of 7 years
1981_ however,
this incnetive
12
government textile
policy
- a rational
program
which of their
mills
to export
at least
30 percent
II.
STRUCTURE
OF INCENTIVES
IN THE COTTON
INDUSTRY
Nominal
and Effective
Protection
commodity
of nominal
of overall i.eo_
(total)
to the cotton
which
measured prices
domestic
However, imports
quality
and domestic
the border
in an attemp
directly
comparable. Ao
The adjustment
procedure
discussed
in Appendix
of government
polieies_
notably
trade
and fiscal
measured
protection
the 1975-81
13
period.
This
close
import
allocation) comparison)
ever, the first estimate used for luther fails to capture analysis
and is
the latter
(by legislated
rates)
the effect
From cotton
by policy farmers
industry,
the nominal
of seedcotton method
was estimated
Briefly,
consists
of two stages.
by replacing
processing pro-
cotton
countries.
The implicit
Second,
lint price equivalent ers and the t6tal, pared with protection cussed
received
termed
in lint equivalent,
was com-
price
Details A.
ofthe
procedure
in Appendix
revealed
protection 7 percent
production period.
this tends
generally_
not protected,
i.e.,
incentives,
14 by price policy ducer prices set by PCC, but rather penalized. 7percent Domestic below pro-
were pegged,
on the average,
compa-
rable world prices The nominal pletely capture protection the impact rate measure, of all price h_wever, policies does not comon the incentive to price policy of inputs Thus, the
structure on output,
in seedcotton farmers'
production.
In addition
also depend
on the price
by various
protection
is a more
relevant
than the
rate. the implicit were tariffs on tradable inputs used in cotton protection
Because production
substantially output,
higher
rate on farmers'
protection
- 12 percent,
primary
factors
value
added) were
as a result
tariffs
on outputs
returns
factors
were penalized
system. has been made credit of the incentive policy impact of of services. has
agricultural
extension, earlier,
research
the national
development
program
15
supervised Only
support.
credit, to which
however,
the penalty
on cotton credit.
subsidy
on agricultural
between
agricultural
the rest of the economy during capital bhe seventies in agriculture sector
to be about
6 percentage
(David,
Consequently, lower
was about
agricultural pressed
as a proportion during
5 percent
_he incentive
ion to farm cotton production imposed, effective being by price policy protection only
on tradsble
rate durins
the period
consideration as a result of
raised
to -9 percent
the credit
subsidy. rate would be still lower when the disincentive to foreign elsewhere, overvalued a 32 percent ex-
domestic
currency
relative
AS mentioned currency
system
domestic
to foreign
exchange.
Medalla
(1979) estimated
of foreign
exchange.
Thus,
in the foregoing
measure,i.e.,
16
percent
during
the 1975-81
period.
however_ has a
currency
on all traded
industries
e=onomy.
Thus,
not change
before
the correction
for currency
overvaluation.
Synthesis
on Incentive
Structure
analysis
has shown
conferred farmers'
by price output
protection negative
on cotton
and value
indicating
that cotton
farmers This
price policy.
accrued
totally of
was apparently
to supplement
extension
and research
and development_
Thus9
a part of
the overall
protection farmers
to the industry
was ultimately
channeled If the
services. could
of these servcies
protection
protection
to be modified.
It is not expected_
of the cotton
17
altered.
Other
agricultural which
government
services
may likewise
the protection
on these
The estimated
protection
lower than those conferred than those on export nal protection crops
7).5
Durin_
crops were,
Considerin_
that export
sugar and:_tohacco, are the predominant in the choice for second crops in most
to observe
a nominal by price
on cotton on export
imposed
severe.
considerin_
that cotton
in farmers
cropping
systems,
advantage
outweighed
by greater
and uncertainly
More6ver,
questions
incomes
be reduced
substantially
offer? program
mostly
grown as second
favorable
price
5 This refers to nominal rates of protection, but as tradable inputs represent only a small proportion of production costs a_d valus of output in crop production, it is likely that the ranking of agricultural crops would be roughly similar with the use of either -_"_e-v_*_ev_e_ure of _rotection. I
18 cotton may be necessary Relative ive Drotection the seventies, very low. to induce farmers to plant cotton. an effectduring was
sector which
received
policies conferred
of about
44 percent
on the cotton
industry
pricing
policies
to the cotton
industry
industries.
the cotton
program.
III.
STRUCTURE
OF COF]_4RATIVE ABVAN_AGE
IN THE
As raised
earlier,
one principal
issue
in the national
J
move,
in the country
produced
per_ective,
is, would
domestic domestic
for imported
cotton
which meanures
of domestic used
at social
opportunity
in saving a unit
exchange
output
farm survey
alternative
crops,
19 at the Special Studies Division, Ministry of Agriculture, description features of these surveys are shown in Table 8. Some These
data wete supplemented by production statistics from the Cottm Research and Development Institute, Philippine Cotton Corporation and the Bureau of Agricultural Economics, Ministry of Agrlculture.
DRC land rent, the average for the seedcotton period production considered are comts shown in
at market
prices)
On a per-hectare basis production costs ranged _2, 131 Labor and operating capital costs in 1981 the increases in the former mainly re-
than increased
The allocati6n, of the above costs to domastic and fooeigh 6 sources is presented in Table I0 . Together with labor,cost, land rental, which was taken to be 25 percent of the valu_ of pzoductlon
6 The genral methodology followed on the allocation of costs to domestic, foreign and tax sources was that outlined in the ZEPAD Pzo_ect. BriefEy, the allocation process took into account the historical origin (source) of tradable inputs, whether they were fully or partially imported.
20 7 in tobacco growing _ the best alternative fully of cotton in present cost. of seedcotton into cotton-
areas,was
allocated earlier,
to domestic (ginning)
As mentioned cotton
processing operating
In the past,
ii, by deducting
the value
seeds)
fluctuated
drastically4
resulted
m_inly
capacity
in some years.
actual
use ranged
in contrast
to an average
fluctuation
marketing
cost. lint
relative
comparative
advantage trend
in cotton
Instead
of an expected
in domestic
1975 onward,
surp_i_results _8,74/US$
with
industry
escalating What
the general
marked
in average
7 A large proportion of the farm respondents used in the present study were share-tenants and /or Dart-ownerso From crop year 1975-76 to 1977-28, it was about 59 percent_ crop year 1978-79 to 1980-$I, 52 percent. For these farms, the most common pratce was the 75-25 sharing system. (i.eo, seven-five percent of the farm produce going to the farmer cultivator and 25 percent to the landowner, the latter not sharing production costs). From this observation it was deemed_ appropriate to measure the opportunity cost of land through the pre' vailing share rent.
21
from 0_37/ha
program
introduced,
to 0.24 mr/ha
to 0.66 mr/ha
of seedcotton, to spiralling
contributed
ion cost per unit of raw cottonproduced to 1978o 9 however, though sources amount Compared with the shadow price
from 1975
still relatively
only slightly,
indicating
of domestic
production required
resources
to earn
domestic
cost of foreign
an apparently
of the industry
the study
falling
substantially a strong
rate, clearly
indicating
comparative
position
above case,
the relatively
8Coincldentally or not, this was also the general trend in the actual national performance of the cotton development program. From a seedcotton yield of 1.24 mr/ha in 1975, the average dropped to 0.54 mt/ha in 1978. From hereon to 1980, average yield showed a reversal trend reaching 097 mr/ha in 1980 but subsequently declined to 0,72 mr/ha the following year 91t should be apparent that the drastic increase in DRC in 1978 was also partly contributed by an almost twofold jump in ginning and marketing costs incurred by PCC relative to that in the previous year.
22
largely
explained from
by comparatively
yield
production
basis
significantly increase
from previous
the remarkable
in average
1980 and 1981 was enough of lint to comparable unit production world market
levels
cost was
strongly
reinforced during
by more
price
the last
The Seedcotton
DRC
DRC does not give a clear picture production. yield time, Though
in seedcotton
it has been
fluctuations
largely
contributed
it should be apparent
or inefficiency
in processing
influence
on overall
therefore
is a measure
of actual
comparative
advantage
in seedcotton
production
the influence
of changing
in processing
and marketing and thus, the DRC in First, the implicit does
However_
seedcotton
(observed)
world
production
was estimated
indirectly.
of seedcotton
price actually
received
23
protection
rate as estimated
section
Then
production shown
The results_
in Table
DRCs were
generally higher
lower DRCs
than industry
compared
production
were
Since the inudstry was DRCs in processing that the DRCs DRCs. the sensitivity
be higher
DRCs
to the assumpt-
in the calculation
was made
elasticities an elasticity
a percent
respect
in a specified
parameter_
all other
factors in
The results
are summarized
Table 14o
DRCs were
Since
the seedcotton
influences
border
is given a further
24
Except
average
yields
used in yield
average
than 1o5 mr/ha of seedcotton, average yield levels of 08 mr/ha are easily
or 88 percent during
the same period_ in areas technology 1o5 to over cotton recent adeis 5 mr/ growdata
these yield
attainable
Moreover, seedcotton
as demonstrated
by model
in each province
and to more
from Mindanaoo
yield
which miniaverage as
advantages
estimated_ !I
production
lOFor crop year 1981-82, Mindanao farmers accounting for 5 percent of national production obtained an average yield of 1o5 mr/ha compared to Luzon (38% of production) and Visayas (11% production) farmers with 0.8 and 09 mt/ha yields, respectively llcritical minimum seedcotton yield is defined as that yield level at which the ratio of DRC to shadow exchange rate (SER) equals to unity, Joe., the country nether losses nor gains in domestic cotton production. Seedcotton yield below the critical minimum would mean a loss to the society, local production being more costly than importation, or vice versa.
25
and as used in the base estimates 3, showed that while close to critical estimates
in Figure generally
minimum have
yields,
cotton more
estimated
to decrease to
advantage
Incidentally_
minimum lower
seedcotton
yields
20 percent cotton
development
at the self-sufficiency
development,
CONCLUDING
REMARKS
by government
on the cotten
were penalized
set by
Cotton
Corporation,
cotton
development
exhibited
a comparative
underscoring exchange
the industryVs
relative
in ssving
foreign
and agricultural
industry's
conferred
by government
26
processing budget
and marketing
operations While
is used
to supplement
the
activities
be also noted
In the short run, for the national growth pace of recent if not all, years,
its modest
that a larger
proportion,
is receiving
to farmers
by instituting
policies
favorable exploit
to farmers.
the country
its comparative
in domestic
cotton
competititveness crops
stabilizes
protection to compete
to be gradually
stated
that there
for cotton
in Philippine efficiency
agriculture,
that economic
income
distribution,
of economic choice
power
and the.socio-political
implications sectors
society,
considered
decisions.
27 REFERENCES
Ba_isacan, AoMo 1982. Economic Incentives and Comparative Advantage in Philippine Agriculture: the Case of the National Cotton Development Program. Unpublished MoS. thesis, University of the Philippines at Los Ba_os, AD_ilo Bruno9 Mo 1972. Domestic Resource Cost and Effective Protection_ Clarification and Synthesis. Jou=nal of Political Economy 80(i)_ 16-33o David, C.C. 1981o Credit and Price Policies in Philippine ture. Unpublished paper, CDEM9 UP at _os Ba_os. A_ricul-
David, C.Co and AoM. Balisacano 1981. An Analysis of Fertilizer Policies in the Philippines. Paper presented at the workdshop on the Re-Direction of Fertilizer Research, Tropical Palace_ Metro Manila, October 26. 218o
Medalla, EoM. 1979o E_ti_a't_the Shadow Exchange Rate under Alternative Policy AssumptlonSo In Baustita, Power and Ass_eiates ,_f_t:s. Industrial Promotion Policies in the Philippines. Medalla, EoM. and J.H. Power H979, Estimating Implicit Tariffs and Nominal Rates of Protection. In Bautista, Powwer and Associates. Industrial Promotion Policies in the Philippines. Philippine Institute for Development Studies. Morales, EoLo 1974o The Prospects of the Cotton Industry in the Philippines A research study presented to the UP ProEram in Development Economies PaBe_ J., Jr., and D. S tryker. 1981o Methodology for Estimating Comparative Costs and Incnetiveso in Pearson eto_alo Rice in West Africa Stanford: Stanford University Press, Pearson, S,Ro 1976. Net Social Profitability, Domestic Resource Cost_ and Effective Rate of Protection. Journal of Development Studies 12:321-33. Philippine Cotton Corporation. Corporation Annual 1977. Reports, National 1975-1980. Cotton Development
Philippine Cotton Corporation. 1980. A Proposal for the Cotton Industry Development Program in the Philippines. Philippine Cotton Corporation 1981o The Textile Industry Survey.
28
Table
I_
Sources
of raw cotton
(lint) imports,
1963-80.
Country
of Origin
196365
1966_ 70
1971 _75
197680
Percent
of total quantity
States
79.0 3,4 0.i 25 1.7 a 0.2 35 2.5 1o6 I.I 4.4 i00.0
Nicaragua Guatemala United Ara_ Sudan Pakistan Israel USSR India Others Total Republic
Source of basic
data_
Foreign Trade Statistics of the Philippine, National Census and Statistics Office.
aLess
2o Table 2. Domestic production supply 1975-81 of raw cotton (lint) and share _o total
Year
Production (rot)
Proportion
to Total
Supply a
Source=
Production
_ata
from Philippine
Cotton
Cornorationo
aTotal
suppl_
is defined
Year
Cotton
Content
(z)
1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 197Z 1978 1979 1980 1981 76 65 62 65 51 50 40 43 32 27 53 44 51 35 41 39 38 39 36
Source:
Philippine
Cotton
Corporation.
30
Table 4_
supervised
credit
financing
Year
Average Farmer
Hectare
(_)
1975 1976 1977 1978 1979 1980 1981 366 19336 3,565 4,675 5,979 15,988 43,887 851 928 635 535 995 1,161 2,001
(_)
1,887 1,641 1,270 1,478 1,946 2,132 2,581
(_)
3,773 7,591 8,158 7_552 7,455 5,796 9,553
(_)
98 75 73 77 80 91 noa.
Source:
Philippine
Cotton
Corporation.
31 Table 5o Trends in farm price, ex-warehouse price ,border Drice, and nominal protection rates on the cotton industry , 1975-81
Year
-8 0 -14 6 0 -2 i_13
14 15 i0 34 39 43 20
Weighted
average, rate h
1975-81
-7
28 24
Legislated
aprice
actually
received
by farmers.
bLint price equivalent of seedcotton price plus efficient cost of converting seedc_tton to cotton lint and marketing the product computed as shown in ADpendix Ao CSelling price of cotton Cotton Corporation. d lint to textile millers by the Philippine
Average CIF Value for imported raw cotton (lint)_ adjusted quality differential domestically produced and imported raw cotton.
e
for
difference
of farm price
to border
difference
of domestic
ex-warehouse
price
to border
Based on existing tariff rates for imported valorem and a 10% sales tax over 25% mark-upo
Ratio
of Credit
Effective
Pro-
-12 i -17 6 0 -3 -5
Weighted 1975-81 a
average_ -12 -9
Weighted
by total
raw cotton
production
in each year
33
Table
7o
Comparison of protection rates on cotton vis-a-vis other crops and between the cotton industry and the manufacturing sector, 1970s and early 1980so
Item
Protection
Measure
Percent
Total nominal protection rate 28 Nominal protection rate -7 Effective protection rate -12 Effective protection rate with credit Nominal subsidy protection -9 rate 3 3 0 Nominal protection rate -21 -24 -4 Effective protection rate 44
crops
se_tor c
a Includes
seed cotton
production
and processing.
bBased on price comparisen between domestic and border prices as estimated in David, C_C. " Impact of Price Intervention Policies on Agricultural Incentives in the Philippines," paper presented at the Second Western Pacific Food Trade Workshop Kartika Chandia Hotel, Jakarta, August 22-23,1982. CBased on legislated rates as shown in Tan_ No "The Structure of Protection and Resource Flows in the Philippines _, in Bautista, R. Jo Power and Associates_ Industrial PromOtion Policies in the Philippines_, Philippine Institute for Development Studies, 1979o
..... _Tabie 8.
* farm surveys
on co--6_n_d'_l
_,
Title
Area Covered
Io Comparative Input, Output, and Finannial Data for Virginia _..:Tobacco,.Pelay,Mongo, Corn and Cotton 2oComparative Input, Output and Financial Data for Palay, Corn, Mongo, Virginia Tobacco and Cotton 3. Comparative Input, Output and Financial Data for Mongo, Cotton pa!ay, Virginia Tobacco andCorn 4. Comparative Input, Output and Financial Data for Cotton, Corn Palay, Mongo, Virginal Tobacco, and Burley Tobhcco
1975-76
llocos Region
515
i00
1976-77
.llocos Region
500
180
1977-78
llocos
Region
554
91
5o Comparative Input, Output and Financial Data for Cotton, Palay Burley Tabacco, Virginia Tobacco_._ ans Native Tobacco 1978-79 6. Comparative Input, Output and Financial Bata for Cotton, Palay, Burely Tobacco, Virginia Tobacco, and Native Tobacco 7. Cost Involved in the Domestic Import 1980-81
llocos Region, Tarlac, Nueva Ecija 515 llocos Region Tarlac, Nueva Ecija, and Cagayan 304
1979-80
426
183
llocos Region
201
_5"
Year
Labor a Cost
CapitalbService Cost
Other. Costs e
Total
41 33 44 36 61 75 176
also
include
Nueva
Ecija9
Tarlac
and Cagayano
alncludes
hired
labor costs
and imputed
v_lues
of operator9
labor.
blncludes Clncludes
depreciation fertilizer,
capital
assets
other
than lando
dAt 15% per .annnm_ app_rtio_ed..as.origi_ale Unclides containers, food for hired
and exchange
36 Table I0. Domestic and foreign cost in seedcotton production, Ilocos Region _, 1975-81.
Source
of
Cost
1975
1976
1977
1978
1979
1980
1981
Domestic Lan_ rent Labor cost Capital service cost Ope_ating capital cost ,-_u_res_ on_preha_vest cost Oth_:r costs Sub-total 1,4!5 1.013 211 350 139 41 3,169 735 789 274 287 I_9 33 2,227 1,169 1,207 446 247 135 44 3,24_ I,_46 934 342 247 115 36 3,120 988 1,274 419 247 125 61 3,114 1,695 1,253 442 369 212 75 4,046 1,241 1,987 544 462 304 176 4,714
Foreign Capital service cost Operating capital cost Su_-total Totml Iomsstic Foreign and 3,852 2,737 3_867 3,637 3,647 4,926 5,952 22 661 683 25 485 510 120 499 619 130 387 517 146 387 533 179 701 880 300 938 1,238
costs
eExcept
also include
Nueva
Ecija,
Tarlac
and Cagayan.
37 Table 11. Estimates of ginning and _.erketing costs in cotton production, Philippines. 1975-81.
Item
1975
1976
1977
1978
1979
1980
1981
GinnYng
Cost cost a 4,480 d 2,280q 2,200 d 5,442 3,182 1,630 4,511 2,745 1,766 5,298 1,643 3,655 4,993 2,271 2,722 2,159 1,255 904 3,570 d d 1,760_ 1,RIO e
Total ggnning
795 90 18 486
Sourc_
of basic data:
PCC Financial
Statements.
aApproximated cost of converting seedcotton to cotton lint. labor, manufacturing overhaed, and administrative charges. blncludes materials. Clncludes value of industrial seeds exported to Japan
Includes
expenses
for direct
and agricultural
seeds
for planting
picking
up seedcotton
from
and transportation
cotton
lint to textilemillers.
dEstima_e.,,_.
Table
12.
Summary
of
domestic
resource
cost
components
in
cotton
lint
production,
Ilocos
Region*,
1975-81.
Year
Ginning b (_/mt)
Comparative Advantage
_Except abased
also
include
Nueva
Ecija,
Tarlac
and Cagayan.
rate of 37% of seedcotton. by-products (industrial between and agricultural produced seeds). and imported cotton lint.
differen_al
domestically
production
of domestic
cost to shadow
39 Table 13. Summary 1975-81. of domestic resource cost tom ponents in seedcotton production, llocos Region _,
Year
_st
ComparativAdvantage
*Except
also include
Nueva
Ecija,
Tarlac
by nominal
protection
rate
on seedcotton,
resource
rate.
seedcotton
production
40 Table 14. Elasticity of DRC coefficient llocesRegion* 1975-81, in seedcotton production with respect to stated perameter,
Parameter Land rent year Labor cost Capital service cost Fertilizer cost Insecticide cost Implicit border price Year
*Except
also include
Nueva
Ecija, Tarlac
and Cagayan,
41
42
44
APPENDIX
ESTIMATION
OF BORDER
OF FARM COTTON
producer
to make domestic
and border
prices
differential between
between imports
difference
can then be
imports
the domestic
price
of raw cotton
omparabl_:
toborder exchange
by average
at official
rate.
However, While
the p_miod
considered staple
in the study.
medium
short
(60 percent).
higher
on domestic
due to the
quality
of the former. for this discrepancy, upward. border prices were corres-
To correct pondingly
adjusted
adjustment
factor)l_14)
price
(1976-81)
of two American
45
lint The
grades_ former
Terr. or
SM
1-1/16" comparable
and to
M of
i". local
less to
latter,
tD_t
of
imports and border prices _ output of involved is not more tradable, In was it and chain
between above.
farm
Since
farmers to that
tradable
lint. price to
comparable_
seedcotton and
terms
price wedge
added
(ginning) measured
cost. at as
domestic in the
producer
prices
a comparable
marketing
then
in above_ however,
government cost to
conferred of the
government PCC_s
policies
farmers not be
processing the
cost
since
cost
of whatever
protection
conferred The
existed
alternative
processing
the
average The
processing implicit of
countries. a close
approximation The
protection-free Table io
processing.
estimates
su_n_marized
in Appendix
46
Appendix
Table i.
Estimates 1975-81.
of farm price
of raw cotton
(lin),
Item
1975
1976
1977
1978
1979
1980
1981
Price received by farmers for seedcotton Price equivalent in cotton lint a Plus: . _rocessxng marketing . ano b costs 3.50 3.85 4.00 4.00 4.00 4.40 4.45
9.46
10.40
10.81
i0o8%
10.8]
11.89
12.03
1.09
0.91
0.96
1.00
1.04
1.09
1.14
10.55
11.31
11.77
11.81
11.85
12.98
13.17
abased
on a recovery
rate of 37%
bAverage of eleven major cotton-producing countries. This rep= resents the approximated cost of protection-free and efficient processing (ginning) and marketing.